Journal
OMEGA-INTERNATIONAL JOURNAL OF MANAGEMENT SCIENCE
Volume 37, Issue 1, Pages 93-105Publisher
PERGAMON-ELSEVIER SCIENCE LTD
DOI: 10.1016/j.omega.2006.08.003
Keywords
inventory; loss aversion; newsvendor model
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Newsvendor models are widely used in the literature, and usually based upon the assumption of risk neutrality. This paper uses loss aversion to model manager's decision-making behavior in the single-period newsvendor problem. We find that if shortage cost is not negligible, then a loss-averse newsvendor may order more than a risk-neutral newsvendor. We also find that the loss-averse newsvendor's optimal order quantity may increase in wholesale price and decrease in retail price, which can never occur in the risk-neutral newsvendor model. (C) 2006 Elsevier Ltd. All rights reserved.
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